OpenSky: Typical family pays less tax in Nebraska than in most similar states

Tuesday

Jan 14, 2014 at 2:09 PM

Middle-income Nebraskans pay relatively low taxes compared to their counterparts in eight nearby states with similar economies and tax structures, an analysis by OpenSky Policy Institute shows.

Middle-income Nebraskans pay relatively low taxes compared to their counterparts in eight nearby states with similar economies and tax structures, an analysis by OpenSky Policy Institute shows.

A family earning the median family income in Nebraska -- $63,442 -- would pay less in taxes than a similar family in all but two of these states, Colorado and Kansas, the analysis shows.

The other comparable states are Iowa, Illinois, Ohio, Wisconsin, Minnesota and Michigan. The states were selected because they have the three major taxes – on income, sales and property – that Nebraska has and they don’t rely heavily on revenue from gambling or natural resources like oil.

“In an apples-to-apples comparison, Nebraska’s taxes are right in line and actually lower than most similar states,” said Renee Fry, OpenSky’s executive director.

Such a middle-income family in Nebraska is likely to pay higher sales and property taxes, but their income tax would be lower than that paid by similar families in all these states but Kansas.

The analysis also shows the tax differences between the states are small as on average, only $238 separates each of these states from the one above or below it in terms of how much a middle-class family pays in taxes.

“What this illustrates is that sometimes tax rankings can make minor tax differences seem more significant than they really are,” Fry said.

While many people point to a state’s top income tax rate when comparing taxes, Fry said, the analysis illustrates that many factors affect tax comparisons, not just rates such as the top income tax rate.

“Simply looking at top tax rates does not tell the full story when it comes to comparing state taxes,” Fry said. “Other tax code features, such as what is and isn’t taxed, matter just as much.”

For example, Nebraska’s top personal income tax rate is higher than five of the comparable states but because of other tax code features including deductions, credits and local income taxes, a middle-income family in Nebraska would pay less in state and local income taxes than a similar family in all comparable states except for Kansas.

The main take away from the analysis, Fry said, is that when viewed in the context of a state’s entire tax code, taxes in Nebraska are simply not out of line with other states.

“Nationally our tax rates are right in the middle and when our tax code is viewed in comparison with other similar states, Nebraskans pay less in taxes than they would in many of these states,” Fry said.